BHP Billiton is down but not necessarily out in its $40 billion attempt to buy Potash Corp, analysts said one day after the federal government blocked Canada’s biggest ever takeover bid.
Industry Minister Tony Clement said late Wednesday the deal currently on the table was not of a net benefit for Canada, a key criteria for approving a foreign takeover. He gave BHP a month to make amendments before his decision becomes final.

“I would be blown away if this dies a death, BHP will come back,” said Louis Gagnon, a business professor at the Queen’s University and an expert in capital markets and risk management. “The government has opened the discussion, it’s sitting at the table and urging BHP to get down to serious talks.”

Analysts said ultimately the government block may have made the transaction too costly for BHP to push through. In addition to the extra concessions to ensure the bid is of net benefit to Canada, it is also likely to have to significantly up its offer to shareholders.

The bid on the table is $130 a share, which Potash says “grossly undervalues” the company. Dahlman Rose analyst Charles Neivert said an improved offer would need to be at least $150 a share, with some other analysts saying $160 would be nearer the price needed to get the deal done.

“With the other things involved that may have been made just too high,” he said.

Investment Canada didn’t give its reasons for nixing the bid, saying it will give a full account once the decision is final.

Potash’s home province of Saskatchewan has lobbied hard against the takeover, saying it stands to lose billions of dollars in revenue and that jobs and investment are at risk.

BHP has offered to beef up the Saskatoon head office and made huge tax concessions to make up the revenue shortfall. But the provincial government said BHP’s offers didn’t go far enough.

Neivert said the federal government was taking a “really, really big risk,” in leaving the door open to BHP to improve its offer.

If the mining giant meets government demands and Ottawa still says no, “it risks a serious credibility issue on a global scale,” he said.

The stock dropped in Toronto trading on Friday, losing just over 3%, to $141.49 in mid-session trading. That’s still well above the bid price, indicating both that the BHP offer is too low and many investors are still expecting more to come.

BHP Billiton in a statement said it would continue to co-operate and will review its options.

“BHP is disappointed, but continues to believe that the offer is of net benefit to Saskatchewan, New Brunswick and Canada,” it said.